By Frank Byrt
With less than two weeks left in the current tax filing season, the IRS has issued six tax tips for the self-employed, a category that includes independent contractors and those who own their own businesses.
1. Self-employment income can include pay you receive for part-time work you do out of your home. This could include income you earn in addition to your regular job.
3. If you are self-employed, you generally have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. You figure this tax using Schedule SE, Self-Employment Tax.
4. If you are self-employed you may have to make estimated tax payments. People typically make estimated tax payments to pay taxes on income that is not subject to withholding. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.
5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be capitalized. That means you can deduct a portion of the expense each year over a period of years.
6. You may deduct only the costs that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.
For more information, visit the Small Business and Self-Employed Tax Center on the IRS website.
The IRS also offers the following three publications related to small business taxes:
- Publication 334, Tax Guide for Small Business
- Publication 535, Business Expenses
- Publication 505, Tax Withholding and Estimated Tax